UK Gilt Yields Near 2008 High as Oil Surge Fuels Rate Hike Bets

UK 10-year gilt yields climbed toward 5.1%, approaching levels last seen in 2008, as soaring oil prices, driven by the ongoing US blockade of Iran in the Strait of Hormuz, heightened inflation concerns and led investors to anticipate further central bank tightening. Brent crude hit fresh four-year highs amid reports of potential US military action in Iran. The Bank of England is expected to keep rates unchanged today, reflecting caution over the Middle East crisis. However, markets still price in nearly three quarter-point BoE rate hikes in 2026. This follows the Federal Reserve’s decision to hold rates steady, though its meeting exposed deepening divisions, with four officials dissenting for the first time since October 1992, three of whom opposed the Fed’s signal of eventual rate cuts.

UK 10-year gilt yields climbed above 5%, nearing levels last seen in 2008, as stalled Iran war negotiations and soaring oil prices intensified inflation concerns, pushing investors to anticipate further central bank tightening. Brent crude reached a four-year high after reports that US President Trump ordered preparations for a prolonged naval blockade in the Strait of Hormuz to pressure Iran. In retaliation, Iranian forces threatened "practical and unprecedented military action" if the blockade persists. The Bank of England is expected to hold rates steady this Thursday, reflecting caution amid the Middle East crisis, though markets still price in almost three quarter-point hikes for 2026. Adding to the pressure, Lloyds revised its UK economic outlook, raising its 2026 inflation forecast to 3.4% from 2.6% and slashing GDP growth expectations to 0.5% from 1.2%. The bank now expects no BoE rate cuts this year, and projects unemployment to peak at 5.6% in Q4.

UK 10-year gilt yields climbed above 5%, approaching levels last seen in 2008, as investors weighed revised UK economic forecasts and awaited policy decisions from the Fed and the Bank of England, alongside updates on US-Iran talks. Lloyds raised its 2026 UK inflation forecast to 3.4% from 2.6% and cut its GDP growth outlook to 0.5% from 1.2%. The bank now expects no Bank of England rate cuts this year, down from its previous forecast of two, and projects unemployment to peak at 5.6% in Q4, up from 5.3%. On monetary policy, both the Fed and the BoE are expected to hold rates steady this week, reflecting caution due to the Middle East crisis. Yet, markets still price in two quarter-point BoE rate hikes for 2026. Adding to the pressure, Brent crude jumped to a four-year high amid the US-Iran standoff, with reports that US President Trump ordered preparations for a prolonged naval blockade in the Strait of Hormuz to increase economic pressure on Iran.